Han Products manufactures 22,000 units of part S-6 each year for use on its prod
ID: 2466474 • Letter: H
Question
Han Products manufactures 22,000 units of part S-6 each year for use on its production line. At this level of activity, the cost per unit for part S-6 is:
Direct materials $ 4.30 Direct labor 6.00 Variable manufacturing overhead 2.40 Fixed manufacturing overhead 15.00 Total cost per part $ 27.70
An outside supplier has offered to sell 22,000 units of part S-6 each year to Han Products for $40.00 per part. If Han Products accepts this offer, the facilities now being used to manufacture part S-6 could be rented to another company at an annual rental of $477,600. However, Han Products has determined that two-thirds of the fixed manufacturing overhead being applied to part S-6 would continue even if part S-6 were purchased from the outside supplier. Required:
a. Calculate the per unit and total relevant cost for buying and making the product? (Round your Per Unit answers to 2 decimal places.)
How much will profits increase or decrease if the outside supplier’s offer is accepted?Explanation / Answer
TOTAL RELEVENT COST FOR MAKING THE PRODUCT.
TOTAL RELEVENT COST OF BUYING
= 22000 * $40
= $880000
INCEREASE/DECEREASE IN PROFIT
= $880000 - $867000
= $13000 DECEREASE IN PROFIT
DESCRIPTION AMOUNT $ DIRECT MATERIAL 4.30 DIRECT LABOUR 6.00 VARIABLE MANUFACTURING OVERHEAD 2.40 FIXED MANUFACTURING OVERHEAD ($15 - $10) 5 COST PER UNIT $17.7 OPPERTUNITY COST $477600 TOTAL RELEVENT COST (22000 * $17.7) + $477600 $867000Related Questions
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